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Thinking about updating your contemporary kitchen to something more modern? Or maybe you want to give the master bathroom that Jacuzzi tub and steam shower you've been dreaming of? Whatever the home renovation, you'll want to find the right contractor—someone you can trust to do a great job for a fair price.

More Americans are staying in their homes due to the sluggish housing market, and many are choosing to remodel. Last year, the National Association of Home Builders' Remodeling Market Index (RMI), a good benchmark for judging the pulse of the remodeling industry, reached a five-year high and has stayed strong this year.

Ed Roskowinski, the general manager and vice president of general contracting company Vujovich Design Build in Minneapolis, says while his company has seen an uptick from about 40 projects a year to 70, they're smaller in scale. "We're seeing a lot of smaller, repair-type projects, maybe a bathroom or a kitchen remodel, and not as many full-scale remodels," he says. Although more homeowners are hiring contractors, annual revenue for the contracting industry is still on the mend—placing hiring power in the hands of the consumer.

Take these steps to ensure you choose the right contractor for the job:

Vet the contractors and their bids. While you may hear of a good contractor through word of mouth, online customer reviews are also a good place to start. On its website, the Better Business Bureau (BBB) has compiled more than 100,000 reviews of general home contractors, many of which are accredited by the BBB—meaning they exhibit a good-faith effort to resolve consumer complaints. You can also read customer reviews on AngiesList.com to gauge a contractor's work ethic, but the site charges a monthly membership fee ranging from $2.60 to $6.80 depending on where you live, plus a $5 to $10 initiation fee. Unlike other websites, Angie's List doesn't allow anonymous reviews, which founder Angie Hicks says "enhances the accuracy" of its reviews.

Before you make a hasty hiring decision, talk to several contractors in your area and get at least three bids, advises Rick Lopes, a spokesperson for the California Contractors State License Board (CCSLB). It's essential to have the contractors survey the property before making an offer so that the bids are as accurate as possible. To get an apples-to-apples comparison, make sure the bids are identical in their plans, all the way down to such specifics as what brands of materials will be used.

Lopes adds that you shouldn't necessarily go with the lowest estimate. "If two bids are the same and one is really low, ask yourself, 'Why is this person offering to do this for a lot less money?'" he says. "That low-ball bid may just be a way to get you to commit to them, and they're going to come back later and say things like, 'Oh, I didn't realize you needed this done,' or they may be providing you with inferior products."

The prospective contractor will likely supply you with a list of references, but odds are, those clients will only have good things to say. A better way to judge a contractor's quality of work is to visit one of their current job sites. Consider asking the homeowner there if the contractor is responsive to phone calls and if the workers show up on time.

Warning signs. With a large number of scam artists posing as contractors, homeowners should be suspicious if a contractor does any of the following:

• Solicits door to door (a few reliable contractors do, but be wary if they're not local)

• Solicits door to door (a few reliable contractors do, but be wary if they're not local)

• Tries to cut you a deal using materials left over from another project

• Quotes a final price without seeing the job

Confirm licensing and insurance. If your state licenses contractors, you can typically do an online license check. As for the insurance, Katherine Hutt, a spokesperson for the BBB, says the bureau's website indicates what the insurance requirements are for your state, so you'll know what to look for.

At a minimum, the contractor should have workers' compensation insurance so you're not financially liable if a worker is injured while on the job. To verify, ask to see a copy of the contractor's certificate of insurance or the name of their insurance carrier.

Although it's not typically required, Lopes says the CCSLB recommends people hire contractors with general liability insurance, which covers damage they might do to your property, such as backing a truck into your garage.

Put everything in writing. Knowing exactly what the contract should include will help you avoid problems down the road. Some obvious things: the start and end date, what materials will be used, the warranty, who the subcontractors are, and the budget. Granted, the budget may change somewhere along the way because you realize you want something else done or for reasons outside your or the contractor's control, like the cost of a material rising. However, if that happens, a change order must be signed, in which both parties agree to the alteration.

The contract dictates the payment schedule, which is often divided into three categories: the down payment, progress payments, and the final payment. The down payment will likely be anywhere from 5 to 10 percent of the job. Lopes says contractors who ask for significantly more than that are trying to "frontload" the contract, meaning they're asking for a lump sum even though they haven't started any work.

Progress payments are payments made throughout the project as certain parts are completed. For example, if you're remodeling the kitchen, you might pay 25 percent once the flooring is finished, 25 percent after the appliances are installed, and 25 percent when finishings like the countertop and lighting are completed. You may want to write in penalties if parts aren't completed on time, but a good contractor may not agree to that.

The final payment is typically 15 percent and is made once you've thoroughly checked over the space and feel every part of the contract has been satisfied.

One important thing many people forget to include is the protocol for lien wavers. If the contractor doesn't pay his subcontractors, they can legally come after you for the money—meaning you would have to pay twice, since you would have already paid the contractor. To prevent this, the contract needs to require the general contractor to produce lien waivers throughout the process, confirming that both the general contractor and its subcontractors have been paid.

The bottom line. Finding a reliable contractor is the first step, but you'll need good communication throughout the project to ensure everything runs smoothly. Says contractor Roskowinski: "Successful projects are really about the dialogue between the homeowner and the contractor."